Objectives: understanding planning stage of the audit process: review of client business and perform audit risk analysis (applicable textbook chapters 4, 5 and 6)
Assume that you are audit senior in an accounting firm. Your firm has recently won an audit for NEON ENERGY LTD. The whole assignment 2 should be prepared in the form of report. The assumptions are that your firm does not have any other clients that operate in this industry and your audit partner is concerned about his lack of knowledge of the industry the company is operating in. He is aware of the requirements of ASA 315 (par 25 and 26).
Your audit partner asks you to prepare a memo/ report on the ‘state of the company's industry' and associated risk factors. Your report must cover the requirements below and exhibit effective communication (attributes such as coherent writing style, proofreading and proper referencing)
Required:
a) Prepare a list of three useful sources (the relevant information from the particular source must also be listed) that you can use to obtain the required industry knowledge. An example of a valid source of research material would be Australian Bureau of Statistics (www.abs.gov.au)
b) Prepare a memo to the audit partner on the ‘state of the company's industry' and associated risk factors.
c) Identify a relevant general balance-related and a transaction-related audit objective based on the finding from the risk factors in part b). The required audit objectives here must be specific to the company that you are working on and causal relationship with part b) must be established.
d) Perform overall analytical procedures to identify significant changes in the financial positions or results of the business which require detailed investigation and explanation. The overall analytical procedures / risk analysis should at least cover the areas in liquidity, (can the business meet present obligations?) solvency (can the business continue to operate for the foreseeable future?) and profitability (is the business profitable?)